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Leasing Changes Can Mean New Opportunities for Dealers

The uneven economy and credit crunch has reached automotive leasing, with some automakers and financial institutions pulling out of the leasing business altogether. The end to the mainstream leasing era, or at least the gradual decline of mainstream leasing, can mean rethinking business plans and researching new revenue channels, especially for franchise dealers. In addition, changing consumer habits based on economic factors are impacting the way people research and shop for vehicles.

Chrysler LLC announced plans to exit the leasing business completely. Chase Auto Finance also said it will not finance Chrysler vehicle leases. GMAC, the financing arm for General Motors Corp., plans to reduce its leasing operation. Ford Motor Credit took a $2.1 billion charge because of the decreased residual value of leased vehicles, but has not announced its leasing plans. Some speculate that the company may significantly raise lease prices on trucks and SUVs.

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These changes amount to a radical shift for some dealers and could leave others with uncertainty as to where to shift their marketing and sales efforts. Falling residual values of SUVs and trucks is a clear indicator that consumers are becoming fuel-conscious shoppers.

As consumers begin to react to the pressures of the economy, one bright spot for dealers and retailers continues to be online sales. Forrester Research and Shop.org, part of the National Retail Foundation, reported that online sales increased 21 percent to $175 billion last year, and forecasts a 17 percent growth in 2008, to $204 billion.

As a primary automotive shopping destination, eBay Motors helps dealers capitalize on this growing market by showcasing dealers’ vehicles. A growing number of dealers are finding that online used vehicle sales are an efficient and profitable way to increase revenue that has been tapered by the decrease in leases and new vehicle sales.

Demand for certified used vehicles continues to grow even in a down economy, as auto shoppers’ interest in used vehicles remains strong. Recently, eBay Motors launched the Certified Pre-Owned (CPO) Showroom to provide dealers qualified, certified-used automotive shoppers through this new, richer shopping experience. Designed to house franchise dealer inventory, the goal is to enable consumers to view certified pre-owned inventory from dealers within their local area via a classified listings format. Participating dealers automatically upload their CPO inventory using OEM-customized templates. Consumers, in turn, can communicate with dealers directly via e-mail, a toll-free number and through the site.

With gas prices continuously flirting with record highs, consumers are starting to change their habits. Used certified cars are an appealing way for car shoppers to save money in an uncertain economy while instilling confidence in the online buying process. This trend is an appealing opportunity for dealers to market their inventory of certified pre-owned vehicles where consumers are shopping—online.

Drivers clearly are beginning to change their behaviors and patterns, including driving fewer miles than in the past. A recent Federal Highway Administration report indicated that U.S. drivers lowered their habits by more than 53 billion miles from November 2007 to June 2008 compared with the previous eight-month period. In fact, the report said the decline is larger than the decline of the entire decade of the 1970s, when gas shortages and oil embargoes ruled the headlines.

A decrease in miles driven coupled with the limited availability of leased vehicles is a driving force behind the burgeoning popularity of certified pre-owned vehicles. Combined with Web sites that shoppers are turning to for research and purchasing, these indicators give dealers insight into where the market is headed and what buyers are looking for in their vehicle needs.

With all the economic uncertainty, consumers are also holding on to their current vehicles longer. This is an opportunity for dealers to market parts and accessories to add on to current vehicles or repair/replace old parts. There is even an opportunity for dealers to bundle services, especially for consumers in their local market.

In these uncertain times, it is important for dealers to anticipate consumer reaction and adjust to meet their needs.

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